Taste of profitability in the food delivery space
Food delivery has been a hotly contested space in India over a decade. It has now evolved into a duopoly between Zomato & Swiggy.
Last week, Sriharsha Majety, CEO of Swiggy announced in an official blog post –
‘Our sharp focus on innovation, coupled with strong execution has led to yet another milestone- As of March 2023, Swiggy’s food delivery business has turned profitable (After factoring in ALL corporate costs; excluding employee stock option costs). This is a milestone for food delivery globally, not just for us, as Swiggy has become one of the very few global food delivery platforms to achieve profitability in less than 9 years since its inception’
Swiggy’s announcement follows a similar news from Feb 23, where Zomato’s Co-founder Deepinder Goyal, had tweeted –
Zomato hit a milestone in January 2023 – becoming EBITDA +ve (ex Blinkit). We are on track with our path to profitability by Q2FY24.
It is a significant milestone which has been achieved after years of effort. In order to contexualise the news let us recap the strategies deployed by players in the food delivery space.
There are two sides to the food delivery business. First is the demand – characterized by users like you and me, who enjoy food but with varying tastes and preferences. Second is the supply – characterized by the local restaurants who can cater to those varying tastes & preferences. Platforms like Zomato match them efficiently and create value for both.
Zomato & Swiggy, through their relentless focus on seamless user-experience and delivery logistics, were able to acquire a substantial user base, with an expectation of unlocking the value of acquired aggregate demand in future. But profitability was hard to arrive from the demand side. There is an upper cap to increasing ARPU and offering discounts is the expected norm. Other players in the food-tech either shut shop or were acquired.
In search of profitability, Zomato & Swiggy, both tried to focus on the supply aggregation as a next step. Zomato started Zomato Infrastructure services (ZIS) and Swiggy started Swiggy’s Cloud Kitchens. ZIS was described as a service (physical kitchen) where current business owners can expand their business to new locations without the hassle of investing in kitchens or infrastructure. These kitchens were equipped with the most sophisticated amenities.
But both Zomato and Swiggy have closed their supply aggregation businesses. Perhaps the only food tech player which has been able to achieve supply aggregation at scale is Rebel Foods – which owns popular brands such as Fassos, Behrouz Biryani, Oven Story, Firangi Bake etc. As a next step, Rebel foods launched an exclusive app Eat Sure for users to order from their set of owned brands, signifying the shift in its focus from supply to demand aggregation, where it faces stiff competition from established might of Zomato & Swiggy.
Thus, it appears, if one had demand aggregation at scale, then supply aggregation efficiencies are missing and if a player had supply aggregation at scale, then demand (user) aggregation efficiencies are absent.
One of the successful and profitable examples in the food delivery space at scale is Jubliant food works better known by the brand name Dominos. Jubilant foodworks has the advantage of extracting efficiencies from both the supply and demand side as Domino’s started as a chain of physical outlets spread across all over the country with a delivery fleet of its own. It would be interesting to see if Jubilaint food works can add and service more brands successfully through their network strength.
For Swiggy & Zomato, it appears they are geared towards making their quick commerce businesses efficient, by leveraging their acquired user base over the years, as an ultimate path to company-wide profitability, not just limited to food delivery.
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